Relationship among variances, Cost Accounting

Relationship among variances

We cannot over emphasize the central aim of variance analysis as outlined in the above paragraphs:  that is to assign responsibility for a particular variance to a exact individual, assuming there is adequate independence among departments and the managers have full control of their departments hence they can be held fully responsible for the resulting variances. Variance analysis subdivides the total variation between the actual profit and budgeted profit for the period into the detailed difference. This is demonstrated in the figure below.  Every manager responsible for the entire detailed variances can then he held responsible. However remember that only those variances useful for management controls are compute.

1651_Relationship among variances.png

Figure: Variance Chart

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